Selling A House With A Tenant In Situ

If you are a landlord and thinking of selling a house with a tenant in situ, then there are issues you need to understand.

Growing numbers of landlords are selling up for a variety of reasons; some are retiring, others want to leave the UK’s private rental sector because of growing legislation, and others want to avoid the prospect of higher mortgage costs in the years to come.

And while you could issue a section 21 notice to give the tenant two months’ notice to leave so you can sell the property with vacant possession, other property owners will be wanting to sell a house with a tenant so that the renter retains their home, and the owner gets to enjoy the capital growth.

It’s also worth bearing in mind that having a tenant in situ – they are sometimes referred to as a ‘sitting tenant’ – will restrict its attractiveness to most buyers – but it will be a positive to another landlord or a new property investor.

That means your property will be worth thousands of pounds less because there is someone living in it.

However, there are lots of landlords and property investors keen to purchase a property that already has a tenant, which means your house will be attractive to them because they don’t have to search for a new tenant.

So, not only do they get a reliable tenant paying rent already in place, but they get to buy a property at a discount.

Here, the Property Road team looks at what you need to know.

What is a sitting tenant?

The first thing to understand is what is a sitting tenant.

• A sitting tenant is a person who legally occupies a property by way of a tenancy. This term usually comes up when discussing the sale of a house that has tenants.
• Just because you want to sell your house, however, does not mean you can automatically evict the sitting tenant.
• You’ll need to know whether the tenant has an assured shorthold tenancy (AST) which gives the tenant the right to live in a rented property for up to 12 months.
• Most tenancies created since January 1989 will be an AST. So, in this case, the sitting tenancy would end at the stated period.

However, if the tenancy has rolled onto a periodic tenancy rather than having a new AST, then you may have to give the tenant a longer notice period. This position can be confusing, so seek advice from a solicitor or a landlords’ organisation.

Why a tenant in situ can be an issue

Perhaps the biggest concern with selling a house with a tenant in situ is the numerous complications it can entail. They include:

• Most potential buyers looking to purchase a home do not want to buy one that already has somebody living in it – they would like to live there themselves.
• Some landlords and investors will be less inclined to buy properties with occupants since they cannot determine if the individual is good or bad, what the tenancy includes, or if they will be able to get approved for a mortgage.
• A potential buyer may have other plans for the house that don’t involve a tenant. For example, they might want to increase the rent, move in their own tenant or redevelop the property – and they can’t do any of these things while there is a tenant living there.

So, while having a sitting tenant might seem like an advantage because it provides the landlord with immediate income, this ready-made arrangement is not always seen as such by potential buyers.

How much will a house with a sitting tenant be worth?

A house with a sitting tenant generally sells for much less than a house that doesn’t have one, sometimes up to 60% less if it is sold at auction.

That’s because of the potential problems associated with having a sitting tenant, such as the buyer having to evict them if they want to move in and/or sell the property.

It’s always worth asking several estate agents how much your property will be worth with or without a sitting tenant present.

How to sell a house with a tenant in situ

This is a step-by-step guide to help someone sell a house with a sitting tenant.

Giving notice to the tenant

If you want to sell with vacant possession, then you’ll need to give your tenant notice. Or you can wait until the tenancy ends. To do this, you will need to:

Check the tenancy agreement

Whether you want to sell with a sitting tenant or with vacant possession, you must check your tenancy agreement terms to see if there are any restrictions on selling the property. If there are, you could end up in breach of your contract and face legal action from your tenant.

That’s because you can’t simply sell the property without the tenant’s consent. But if there are no such restrictions, then you will need to give your tenant at least two months’ notice of your intention to sell. This is to ensure that the tenant has adequate time to find alternative accommodation. You will also need to provide them with information about the sale, such as details of the estate agent and the asking price.

Ask the tenant to buy

It’s always worth asking the tenant if they would like to buy the house first. They may not want to, but if they do, this is a weight off your shoulders!

Tell the buyer

You’ll also need to be upfront with potential buyers about the fact that there is a tenant in the property and provide as much information as possible about them.

After selling

Once the property is sold with a sitting tenant, the new owner will become the landlord and will be responsible for any repairs or maintenance that is required. They will either issue a tenancy agreement or, possibly, continue with the existing one. It is also worth bearing in mind that selling a property with a tenant in situ can take longer than selling a vacant property, so you will need to be patient and negotiate fairly with potential buyers.

The bottom line

With a bit of planning and some honest communication, you should be able to find a buyer who is happy to proceed with the sale when there is a tenant in situ. It will probably be another landlord who is looking to grow their portfolio, and having a sitting tenant means they don’t have to find a new tenant.

Potential issues when selling a house with a tenant in situ

There are some other issues to consider when selling your house that has a sitting tenant:

• If they are not happy about having to leave, they may not cooperate with the sales process.
• Your tenant may be unwilling to give estate agents, valuers, and potential buyers access to the property; unless, of course, the tenancy explicitly states otherwise.
• A tenant may say they are happy to leave, so you’re able to sell your home, but if they can’t find somewhere else to live, it might prevent them from moving.
• Even if your sitting tenant is cooperative, the house may not be well-presented or tidy, potentially scaring away potential buyers.
• If your sitting tenant leaves and you put your house up for sale, you will not earn any rent until the sale goes through. So, for example, if the monthly rent is £900 and the sale takes six months, this would cost you £5,400 in lost rent.

How to market your property to potential buyers

When marketing your property to potential buyers, you will need to include the information that there is a sitting tenant in all of your advertising, whether it’s online or offline.

You might want to consider using a specialist letting agent to help you find a buyer, as they will be able to target landlords and property investors who are specifically looking for properties with tenants already in place.

Your options for selling a house with a tenant in situ

Selling with an estate agent

At first, you may think that selling your estate is a simple process. However, not everyone wants to buy a property with sitting tenants. As mentioned earlier, most house buyers would rather purchase a house to live in themselves.

This means there is a reduced pool of potential buyers who are interested in an investment property like yours.

If you do go through with using an estate agent, be wary and make sure that they have experience in successfully marketing tenanted houses up for sale.

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Advantages of using an estate agent

• Landlords who are looking to buy rental properties are registered with some agents;
• If there is a high demand from buyers, you could get a better price for your property;
• Estate agents usually have the experience needed to provide accurate valuations;
• You remain in control of receiving the memorandum of sale and exchange of contracts, which means you can withdraw from the sale anytime you want.

Disadvantages of using an estate agent

• Sellers using estate agents may find it difficult to locate the perfect buyer who is also looking for a property that meets their specifications.
• Once a sale has been agreed upon, it can take an average of three to six months before the transaction is finalised.
• There is always a potential risk involved in any part of the property chain —including buyers backing out of purchase agreements.

Selling a rental property with a sitting tenant at auction

Selling a rental property at an auction has potential – and it can be quite exciting. However, there are some unknowns when selling at auction, and a lot depends on who is in the room making bids.

Essentially, the more buyers in attendance, the better chance you have of selling your tenanted property for a good price.

Advantages of selling with a sitting tenant at auction

• Auction houses typically attract landlords who want to grow their portfolios;
• Once the auctioneer falls, the sale is binding for both seller and buyer;
• You get to choose a reserve price, this is the lowest amount you are prepared to accept – and the price won’t go lower;
• You could – on a good day – make more money than anticipated by selling at auction.

Disadvantages of selling with a sitting tenant at auction

• Be prepared to pay the sale fees of 2.5% on the sale price;
• There is no guarantee that you’ll find a buyer when your house is auctioned;
• That means you’re back to where you started and have to find a buyer;
• Once the hammer falls, you have no opportunity to back out of the deal.

Selling your property with a tenant in situ

Selling your property with a tenant in situ can be quick and easy, and while it might be a bit more complicated than selling a vacant property, it’s certainly not impossible.

You will need some careful planning and some honest communication so you find a buyer who is happy to proceed with the sale.

If you sell with vacant possession, you must follow the legal steps to ensure the tenant will leave the house; if you sell with a tenant in situ, check the tenancy agreement allows you to sell and make sure the tenant is happy at the prospect of you not only selling but getting a new landlord.

The most important advice when it comes to selling a property with a tenant in situ is to take legal advice – you’ll need someone who is experienced in this part of the market, and it’s worth joining a landlord’s organisation because they have lots of advice available and access to solicitors.